CMA Final · Strategic Financial Management · Securitization
A pool of auto loans of ₹100 crore carries an interest rate of 12% p.a. The SPV pays investors 10% p.a. on PTCs of ₹100 crore and the servicer is paid a fee of 0.5% p.a. on the pool. The remaining spread is called excess spread. What is the annual excess spread in rupees?
The excess spread is ₹1.5 crore a year. Pool interest of ₹12 crore less investor coupon of ₹10 crore and servicing fee of ₹0.5 crore leaves ₹1.5 crore. Ignoring the servicing fee would wrongly give ₹2 crore.
- A₹2.0 crore
- B₹1.5 croreCorrect
- C₹2.5 crore
- D₹1.0 crore
Explanation
Interest inflow is 12 crore. Investor payout is 10 crore and servicing fee is 0.5 crore. Excess spread = 12 - 10 - 0.5 = ₹1.5 crore. The ₹2.0 crore option ignores the servicing fee.
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